Wednesday, April 22, 2009

Can I Use My 401(K) for the Down Payment?

A number of people recently asked us if they could borrow money from their 401(K) or mutual fund account and use that to pay for their down payment. The answer is yes, and here are the underwriting guidelines:

If the 401(K) is being listed as an asset on the loan application, the total amount of the 401(K) must be reduced by the amount that was borrowed. However, the 401(K) loan payments do NOT have to be counted as liabilities against the borrower. This is a great way to secure the funds for a down payment or closing costs without increasing a borrower's debt-to-income ratio.

If the buyer borrows money against a non-liquid asset (real estate, cars, etc.) then the payments do have to be counted as liabilities.

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